MENA Oil Research - Public Version - NSU Tom O'Donnell

MENAOILRESEARCH
By
Ashley Cunningham

Flor a S mith

E r ik S yver son

L awren Mered
Spring '11 Final Research Project

m e n a o ilr e s e ar c h.bl o g s p o t .c om
The G eopo l it ic s o f G l o b a l O i l seminar by Dr. Tom O'Donnell

T h e G r a d u a t e P r o g r a m fo r I n t e r n a t i o n a l A f f a i r s
N e w Sc ho o l U n i ve r s i ty, NY C - Mar ch/May 2011
TA B L E O F C O N T E N T S
A H i s t o r i c a l ove r v i ew o f A l g e r i a a n d t h e R o l e o f H y d r o c a r b o n s

by Flora Smith
page 4 - 14
The Saudi Oil Empire

by Ashley Cunningham
page 15 - 36
Iraqi Oil Workers' Movements: Spaces of Transformation & Transition

by Erik Syverson
page 37 - 43
MENA OIL RESEARCH - ALG / KSA / IRQ

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A Historical over view of Algeria and the Role of Hydrocarbon
a case study by Flora Smith

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A Historical overview of Algeria and the Role of Hydrocarbon
Given the prominence of the Middle East in oil production, and its own declining
share in oil production, Algeria may be overlooked as a leader in the industry. However, it
is the 14th highest global producer of oil, the 4th highest in Africa, and a member of OPEC.
Further, Algeria is offsetting its falling oil exports by developing the recent discoveries of
Liquefied Natural Gas (LNG). In fact, it is the 6th largest global exporter of LNG and is the
2nd largest exporter in OPEC. It has a strong relationship with the west: 25% of its oil
exports are consumed by the US, and Europe relies on Algeria to meet 15% of its LNG
needs. The strong links between Algeria and Europe (and especially France) have a long,
troubled, and violent history, in which hydrocarbons have played a significant role. This
paper will provide an historical overview of Algeria’s political and economic development
from colonialism to the end of the Civil war, with a focus on the role played by
hydrocarbons and its global market1 .
1 This section relied on information from: US Energy Information Agency, “Algeria Country Energy
Profile,” Retrieved from http://www.eia.doe.gov/cabs/Algeria/Full.html, May 2009.

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I - Colonial History
The paths of France and Algeria first cross in 1830 when France invades the area on
the premise of preventing piracy and thereby protecting regional security. In reality, it was
to resolve a balance of payments conflict with the Ottomans, who were then ruling the
area. By 1837 France had gained complete control, and began an initiative of mass French
(and other European) migration into the area, with the goal of consolidating all economic
resources (oil) and political power in the hands of a small, foreign elite. Native Algerians
put up a resistance, but it was not until the early 20th century that the nationalist
movement gained momentum. To appease the population, in 1936 the Blume-Violette
plan offered “integration” or equal status as French citizenship for Muslim Algerians and
French settlers, but was rejected. France suffered a further (though temporary) setback
during World War II when Hitler successfully takes control of Algeria’s oil resources, but
the Allies regain control of the area in 19422 . After the end of WWII, France establishes the
Bureau de Récherche des Pétroles (BRP) to coordinate its global oil exploration missions,
including those in Algeria. These efforts paid off, and by 1954 a massive oil field was
discovered in Algeria’s Sahara region. This one field is estimated to have produced 46
billion barrels of oil by 19963 . While it had just secured a measure of energy
independence from the British dominated Middle East, Algerian resistance to colonial rule
was coming to a boiling point that would soon threaten the security of this discovery.
Oil Discoveries and the War for Independence 4 .
2 Yergin, Daniel, The Prize: The Epic Quest for Oil, Money, & Power, Free Press, 1992, p 342.
3 Lyell Collection, “Exploration history of the Palaeozoic petroleum systems of North Africa”, 1998,
retrieved from http://sp.lyellcollection.org/content/132/1/69.abstract.
4 This section relies on Aissaoui, Ali, Algeria: The Politicial Economy of Oil and Gas, Oxford
University Press for the Oxford Institute for Energy Studies, 2001.

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Resistance to French role turned violent in 1954 when 88 French settlers, or pieds-
noirs, were killed during a protest. 1,500 native Algerians were killed in reprisals. As a
response, on October 31st rebels orchestrated several terrorist attacks on French police and
military facilities. The next day the rebels released a manifesto declaring their intent to
fight for independence and identified themselves as the National Liberation Front (FLN),
and the war for independence officially began. The FLN continued to orchestrate
bombings on French police facilities, and later expanded their reach to public places
frequented by Europeans. This illustrates the FLN’s philosophy of Arabisation, which
embraced the Muslim Arab roots of some Algerians. This was in direct opposition to the
French’s (native) assimilation to European culture. The political counterpart to the
movement was the Provisional Government of Algeria (GPRA), which was founded in
exile in 1958. In Algeria, the French ruling establishment’s response was to establish a
“Committee of Public Safety” which relied on right wing support in Paris to maintain their
hold on power and resources in Algeria. This is because, during the outbreak of war, the
French had made massive oil discoveries in Algeria’s Sahara region.
The first was made by the French Régie Autonome des Pétroles (RAP) in 1956, and
two years later this one field was satisfying 94% of France’s oil needs. The same year the
fields were operational, the Saharan Petroleum Code was passed. The Code
institutionalized the legal and fiscal framework for the development of both the oil and of
pipelines to transport it from the two major fields, the Oasis and Saoura, both in the
Sahara region, as well as from four other discoveries in the same year of proven reserves
throughout the country5. The windfall of oil and profits from these discoveries reduced
5 Hedberg, Hollis and Mood, John, “Petroleum Developments in Africa in 1958” AAPG Bulletin
Volume 43 (1959).

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France’s foreign exchange constraints from buying foreign oil, and fueled the countries
post-war reconstruction programs. Of special significance was the fact that this discovery
was purely “French” and it reduced their reliance on British dominated Middle Eastern oil.
However, the war for independence threatened French control on this vital source of long-
term revenue. France recognized the gravity of the stakes at hand, and by manipulating
public fears, elected WWII national hero, Charles de Gaulle as president. One of De
Gaulle’s first acts is to declare emergency rule in Algeria. At the same time, he gives the
impression of offering the FLN the same oil France is fighting for in an effort to subdue the
revolution.
In 1959 he unveils the Constantine Development Plan, which was the first specific
development plan for Algeria, which bills oil and potential LNG as an engine for growth
and industrialization. However, the plan kept in line with previous legislation, such as the
Saharan Petroleum code, and most of the profits were still remitted to France. Since the
Constantine Plan failed to yield visible results, de Gaulle brings another offer to the FLN:
after a three year ceasefire, the French government would hold a referendum in Algeria
with three options: full integration to France, association with France as an independent
entity, or total secession and independence. This offer backfired as well and led to mass
protests and riots, and the war intensifies as the FLN scales up terrorist actions and the
French military intensifies its counter attacks.
Although each public offer ended in failure, during this period there was significant
progress behind the scenes. Resource management was a significant issue for both sides
and this is illustrated during the secret negotiations that took place in 1961 and 1962
between the GPRA and the French government. The FLN was pushing for the creation of a
purely Algerian administration of the hydrocarbon sector, but an agreement was finally

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reached that would give the new Algeria a managerial and ownership role without totally
banishing the French from the area. GPRA secured French recognition of Algeria’s
sovereignty over the Sahara in the Evian Accords of 1962, which laid out the framework of
French-Algerian cooperation in resource management. The Accord also included a
“Declaration of Principles on co-operation for development of the sub-soil resources of the
Sahara.” According to this declaration, Algeria inherits France’s prior obligations and
commitments to foreign oil companies as stated in Sahara Code. A sore point for Algeria
was that its power as a “concession granting authority” was dulled by the establishment of
the Organisme Saharien, which was a consultative body with the authority to grant
concession and transportation rights, and was in charge of all oil legislation and
regulation. Algeria and France were equally represented in the Organisme Saharien, which
meant that Algeria did not have complete control over its own resources. Nevertheless, in
March of 1962 a ceasefire was signed between the two parties, and a referendum was
held. On July 3rd, 1962, after nearly ten years of fighting, Algeria was independent.
II - The Rise of an Industry
FLN holds onto power from 1962 to 1992 by its reputation as the liberator of the
nation, and through its dependence on natural resources, which at its peak makes up 90%
of exports and 60% of government revenue 6 . This made the country extremely vulnerable
to price shocks, and ultimately contributed to a civil war and the downfall of the FLN. This
section will examine the influences of the global oil market on the party’s evolving
policies.
6 US Energy Information Agency, “Algeria Country Energy Profile,” Retrieved from

http://www.eia.doe.gov/cabs/Algeria/Full.html, May 2009.

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While Algeria became politically independent in 1962, France still had substantive
control over the country’s oil. In a move to consolidate power and maintain influence,
RAP, a French oil company merges with BRF, to form a new National Oil Company (OIC):
Elf. This enabled France to use its increased base in Algeria to invest in exploration on a
global scale. Ahmed Ben Bella, Algeria’s first president, responds by establishes Sonatrach,
the nation’s first national oil company, which is tasked with the transport and
commercialization of the nation’s hydrocarbon resources. Although at its founding Algeria
controlled only 4.5% of the nation’s fields in comparison to France’s 67% stake, by the late
70’s the state will have complete control of the company, which will manage all aspects of
up and downstream production 7 . However, while Ben Bella is in power oil revenues do
not sufficiently replace French investment, nor does the “colonial-type export” system
fundamentally change, so the country turns to external aid and by 1965 Ben Bella is
overthrown by Houari Boumedienne in a bloodless coup.
Boumedienne’s primary goal is to end dependency policies and promote solidarity
among developing countries. In 1965 he reaches an agreement with France which brings
more oil revenues to Algeria, and puts mining, banking, and trade under state control. It is
also during this period that oil reserves are found in the south. He proves his “third-world
solidarity” in 1967 when he participated in the OPEC oil embargo after the Six-Day War
began (even though Algeria wasn’t a member yet). The next year he increases state control
over oil when Sonatrach signs an Exploration and Production agreement with Getty
Petroleum Company thereby gaining 51% of its interests. After this feat, and his show of
solidarity during the 67 war, Algeria becomes OPEC’s tenth member 8 .
7 Aissaoui, Ali, Algeria: The Politicial Economy of Oil and Gas, Oxford University Press for the
Oxford Institute for Energy Studies, 2001.
8 Ibid.

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So, given the President’s rejection of psedu-colonial practices, the need for state
revenues, and the sting the loss of concessions to the French is to the nation’s pride and
purse strings, it is not surprising that Boumedienne nationalizes Algeria’s gas and oil
interests. And, unlike the “gradual participation agreement” where states took an initial
25% of national interests which would gradually increase to 51% by 1983, which was
advocated by Saudi Arabia and other Gulf States, Algeria immediately seized a 51% of all
interests9. As a result all French companies except Total ceased operations.
While nationalization resulted in a windfall of revenue throughout the 70’s, and
new discoveries guaranteed easy access to financing, Algeria was now responsible for not
only producing but selling its oil, which means competing with other exporters to secure a
place in the market and competing with other exporters. The influx of exporters (and
hence supply) can lead to a decrease in price which therefore forces countries to increase
its production to maintain its revenue, which can lead to political instability. In 1973
Algeria lent its support to the Arab cause participating in the second oil ban during the
fourth Arab-Israeli war, and shortly after hosted the Arab Summit in Algiers, where the
group ratified the ban and voted to legitimize the use of oil as an “economic weapon.”10
Boumedienne leveraged the country’s new power and influence by convincing OPEC to
align itself with other developing countries to improve the global South’s terms of trade
vis-a-vis the North. This culminated in the Algiers Solemn Declaration in 1975 which led
to the creation of the Conference on International Economic Cooperation. This was the
first time OPEC started to reach a consensus on a political strategy, but these efforts failed
9 Yergin, Daniel, The Prize: The Epic Quest for Oil, Money, & Power, Free Press, 1992.

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to get off the ground. Undeterred, Boumedienne continues his mission for greater state
control of the economy with the creation of the 1976 National Charter, which
consolidates power into a one party regime enforced by the military.
After Boumedienne’s death in 1978, the FLN nominates Chadli Bendjedid, who was
critical of Boumedienne’s global south solidarity movement. In fact, his national agenda
was quite different: during his presidency he embarked on a campaign to scale down
industrialization, restructure state companies, accelerate development of social
infrastructure and housing, and to revitalize the failing agricultural sector. He was able to
implement these ambitious programs thanks to the high oil prices of the 70’s. However,
these prices could not stay high indefinitely without destabilizing the global market. Just
one year into his presidency Saudi Arabia’s oil minister, Yamani, accelerated his campaign
to convince OPEC members to lower their price to stabilize the price surge and constant
leap-frogging in the global oil market. He repeatedly warns that demand will eventually
fall and leave oil producers vulnerable. However, Bendjedid was depending on high oil
prices to finance his ambitious development plans for the agriculture, social infrastructure,
and house sectors, and immediately raised prices further after his meeting with Yamani 11 .
Further, after the Iranian Revolution spurs further price increases, Sonatrach, under
Bendjedid’s supervision, initiates a price review for oil and in 1982 reaches a new LNG
price agreement of $5.10/mBtu with France.
III - Price Drop and Political Instability
Unfortunately for Bendjedid, the high prices didn’t last long, especially after OPEC
and Saudi Arabia decided to increase their market share in order to “secure a fair share in
11 Yergin, Daniel, The Prize: The Epic Quest for Oil, Money, & Power, Free Press, 1992.

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the world oil market consistent with the necessary income for development.12” In fact,
during the price crash in 1985-6, Algerian revenue decreased by nearly 50%: Algerian
exports fell from 14 billion USD to just 7 billion USD in 1986. Algeria began advocating
for OPEC to reintroduce a new (lower) quota to increase the price back to the $29/barrel
high in 1981, but settled for the quotes which set in 1986 of $15-18 per barrel 13 , Algeria
also allowed foreign companies to partner with Sonatrach in the same year, which
signaled a weakening of the state monopoly.
However, these actions were not enough to calm the political unrest that the price
drop had fueled. There were massive riots in 1988, so Bendjedid tried to pacify the
population by introducing a new constitution in 1989 which allows for non socialist
governments and multi-political party participation. The president also outlined new
economic reforms, including the loosening of state control over national companies and
the framework for a more internationally oriented market economy. This backfires in some
ways it gives way to a rise in radical Islam; namely the Islamic Salvation Front, or FIS, who
accuse the government of pandering to the West. The FIS do not have their own political
or economic platform, but gain popularity by criticizing the government’s state
programming and IMF reforms. In fact, the FIS wins enough seats in the first round of
legislative elections in 1990 that the FLN does not allow the second round to occur. This
leads the FIS to merge with the more radical Armed Islamic Group (GIA) and become the
Islamic Salvation Army (AIS), and civil war begins.
12 Ibid.

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IV - Civil war and a Shaky Peace
Oil prices continue to fall, and in 1994 Algeria takes on an IMF re-structuralization
program, which made 1998 price drop (its lowest point was $10 a barrel). This led to a
larger role for the French and the EU in the Algerian economy, and in 1995 the EU’s
Mediterranean strategy called for political and security cooperation, as well as a free trade
zone by 2010. The security component was an effort to end the violence, and with it the
influx of refugees into Europe. The government benefited from the subsequent 1999 price
increase, but since the prices are so instable the drops hurt the general population and the
increase in revenue during an increase do not lead to a substantial or sustained increase in
their quality of living.
During these economic developments, the FLN makes tentative steps towards
reconciliation with the FLN. In 1995 Liamine Zéroual, former Minister of Defense, is
elected president. He makes some progress in talks with the AIS, but then bans religious
political parties, and establishes an upper chamber in the legislature it an attempt to
consolidate power. This causes a surge of violence, and he is forced to resign in 1998. In
1999 presidential elections are held and another FLN member, Abdelaziz Bouteflika wins
in disputed elections. However he takes steps to end the war by reconciling with the FIS,
declaring amnesty for arrests “Muslim Terrorists,” and releasing over 5,000 prisoners. On
the economic front he focuses on long term reform by reducing the state’s role and
opening up Sonatrach to competition. A shaky peace is in place. But given the current
instability in the region, and the low-intensity protests within Algeria, it is unclear how
long the calm will last.

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An essay by Ashley Cunningham

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The following project seeks to provide a comprehensive history of oil in Saudi
Arabia, from the establishment of the “petromonarchy” through the present. Throughout
the semester, fellow classmates and I have used Daniel Yergin’s The Prize to augment class
lectures. This book is considered by many scholars to be the preeminent text concerning
the geopolitics of global oil. As such, and in light of the non-chronological order of his
text, I have employed Yergin’s narrative to provide the factual backbone of this retelling of
the chronological history of oil in Saudi Arabia. Ultimately, the following is a reiteration of
his established narrative, supplemented with the extraction of overarching themes and
analysis related to the evolution of oil and the Saudi kingdom. Factual events or related
arguments by scholars other than Yergin are cited in footnotes; all other information in this
text are inspired, influenced or directly quoted from Daniel Yergin.
The First Petromonarchy 14
The Saudi dynasty began in the early 18th century in central Arabia when the Al-
Saud family aligned with the Wahhabi branch of Sunni Islam that has since represented
varying degrees of influence for both the al-Saud family and the Saudi state. Upon
14 Yergin,D. (1991). The Prize: The Epic Quest for Oil, Money & Power. New York, New York, USA: Free
Press, 283-286.

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expansion throughout the peninsula, the Al-Saud family clashed with the Ottoman Empire,
which defeated the Saudis in 1818 and stopped their growth. The Kingdom was later
restored in Riyadh, though suffered through interfamilial power struggles throughout the
19th century. The second restoration, which would prove to be a crucial step toward the
Saudi Arabia of today, was established under the leadership of Abdul Aziz ibn-Saud in
1902. The dynasty continued to expand in the following decades, eventually conquering
the eastern Shiite-dominated regions and carefully absorbing the local populations under
the watchful eye of Ibn Saud.
The post-World War I period was marked by expansion and territorial disputes
with neighboring Kuwait. When Saudi warriors took the Hijaz region in 1925, home to
both Mecca and Medina, Ibn Saud was regarded as the ultimate leader of the Arabian
Peninsula and the guardian of the holiest sites in Islam. Soon after the integration of the
Hijaz, Ibn Saud experienced two trends that would weave in and out of the Saudi narrative
for many years to come: the backlash against signs of modernity and the West and
consequently, the need to control conservative, activist elements of Saudi society.
During the late 1920s, the Ikhwan movement, comprised mainly of the very
soldiers that fueled Ibn Saud’s territorial acquisitions, challenged the dynasty. Grievances
over external influences viewed as corrupt and against Wahhabi ideology fueled the
rebellion, which lasted for three years until eventually the movement was dismantled and
Ibn Saud was firmly back in control. It was following this moment of victory that Ibn Saud
renamed the kingdom and Saudi Arabia was born.
Yet another long-lasting trend arose in the years immediately following the
consolidation of the kingdom- the need to quell tribal instability and unrest with funds
from the kingdom’s coffers. This trend combined with the economic depression of the

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1930s, left Ibn Saud in desperate need of money, yet he was hesitant to pursue oil
development as a means of earning revenue. The fear that an influx of foreign influence
could corrupt the traditional nature of Saudi society rendered monies derived solely from
oil exploration a promising compromise; this alternative did not require the flood of
manpower, capital and associated Western vices that establishing a proper oil industry
would necessitate.
Discoveries in the Region and the First Concession15
In the year after the Kingdom of Saudi Arabia came nominally into existence, oil
was discovered in neighboring Bahrain; this breakthrough piqued the interests of foreign
oil companies that were already curious about additional oil prospects in the region. With
hopes of oil discoveries in Saudi Arabia’s eastern al-Hasa region, the competition for the
first concession began.
The motivations for all parties involved in the concession negotiations greatly
differed. For the Saudis, the interest was as much money as soon as possible in order to
stabilize the nation and continue to finance various development programs. For the two
oil companies, Standard Oil of California (Socal) and the Iraq Petroleum Company (also
representing Anglo-Persian), the aims widely diverged, as the former actually sought to
find and develop oil, and the latter was interested in a concession as a protection
mechanism to keep other companies at bay.
In 1933, the first oil concession was signed with Socal. The deal comprised 360k
square miles to be used for 60 years. The payment for such a concession was $175k in
gold with additional loans over time, particularly when or if oil was indeed discovered in
15 Ibid., 289-292, 298-302.

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the kingdom. The other competing oil companies won their first Saudi Arabian oil
concession three years later in the Hijaz region. The initial search for oil by the California-
Arabian Standard Oil Company (Casoc) was neither effortless nor promising venture. Not
only were the first wells dug unpromising and the terrain difficult to maneuver, but there
was a global oil supply surplus. In an effort to increase stability in uncertain time, Socal
and Texaco initiated a joint venture, Caltex; the Saudi concession was lumped into the
partnership.
In 1938, the first large Saudi oil discovery was made. Just as the Bahraini discovery
had fueled competition in the preceding years, so too did the Saudi discovery- only this
time from the major Axis powers. The Axis courting of Saudi Arabia began in the late
1930s when both Japan and Germany launched diplomatic representation in the kingdom.
Though Socal held onto and expanded its contractual concession, there was little that the
company or the Saudi government could do to stop the turmoil that erupted at the onset of
World War II. The project of pumping and exporting Saudi oil was not even two years old
before the majority of its progress and development slowed rapidly. The Saudi oil fields
simply represented too much of a threat, should they be captured by the Axis powers.
World War II: Oil as National Security16
Though the Saudi fields were overlooked and drawn down in the early years of
World War II, the perception of their value would completely change in subsequent years.
Following the exploration and assessments of a prominent American geologist, Saudi
Arabia was estimated to have 5 billion barrels of proven/probable reserves, with a total
estimated reserves of 100 billion barrels. Until this period in the mid-1940s, America’s
16 Ibid., 393-396.

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gulf reserves were considered to be the most important and promising oil prospects in the
world, producing more than 7 times the amount of oil as the Arabian Peninsula. Following
the valuation of Saudi potential, the focus of industrial oil development reoriented toward
the Middle East
Military battles were not the most pressing concerns for the kingdom and despite
the unbelievable oil estimates; there were looming problems of another nature- a war-
spurred financial crisis. With few other options, the Ibn Saud was forced to appeal to
Allied countries for economic aid. At the onset of the 1940s, the United States refused to
provide financial aid to help Ibn Saud, even though two of the largest oil companies in
Saudi were American. The reasoning behind the refusal was based largely on the fact that
Saudi Arabia was not a democracy; however, a few short years later, upon learning of
massive domestic oil shortages and the precarious positions of the US oil companies vis-à-
vis the British, the US provided its first economic aid to Saudi Arabia.
The United States could not keep up the pace of oil production, creating a security
of supply gap that was regarded as a certain weakness in national security. It was at this
time during WWII that the importance of sources of foreign oil was prioritized in the
national security discourse, thus explaining the aid provided to the kingdom.
Post-WWII: Aramco and the Fragmentation of Historic Palestine 17
The Arabian-American Oil Company (Aramco) (the joint venture established by
Socal and Texaco) was running Saudi oil development in the post-WWII period, under
constant stress to balance their need for capital with the needs, wants and expectations of
the kingdom. For the US government, American companies in control of Saudi
17 Ibid., 410-416, 425-426.

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concessions had become a much more pertinent issue than in the 1930s. To expand
foreign production and safeguard the future of domestic oil and security of supply were of
the utmost importance in the post-war period. Understanding the need to gain access to
greater markets and “spread the risks” Aramco was facing, a deal was reached in 1947 to
include two other American companies to manage the Saudi concession.
The final years of the 1940s were marked by tensions surrounding historic
Palestine and ongoing Zionist colonization. Ibn Saud was outspokenly anti-Zionist and at
the time of the creation of Israel, was keen to threaten the US with the cancellation of oil
concessions. The 1948 War proved to be illuminating of ongoing US-Saudi trends. Though
it was an affront to Ibn Saud and the entire Arab world that a Jewish nation could be
established on the backs of the Palestinians, this outrage had to be tempered with primary
concerns in the kingdom. Without US oil operations, the king would lose his monetary
lifeline, not to mention US security protections. In the end, the King resisted the pressures
of the Arab world and allowed the concessions to rest untouched in American hands. This
event marked a move toward favoring the US-Saudi “alliance” over broader inter-Arab
support and proved that Saudi domestic concerns, at times, trump its purported
ideological leanings.
A common theme in early Saudi relations to the Western world is how little
perceived influence the kingdom actually held in determining its own path of
development. In the final years of WWII, it was the British and the United States that
negotiated with one another over control and influence in Saudi Arabia. Granted the
kingdom was in dire economic straits and the origin of revenue mattered less than actual
payment, the attitudes of Western governments represented continuing paternalism and

21
economic imperialism. The need for a greater say in Saudi affairs would arise in the last
year of the decade.
Unsatisfactory Oil Shares: The Move Toward a “50/50” Split18
Depressed markets abroad had negative effects in the kingdom in 1949, fueling
greatly the call for an increased share of oil rents. The aforementioned need to subsidize
tribal cohesion, as well as provide public salaries, once again proved to be the
fundamental driver of the Saudi state. The 1950s represented a shift in the Saudi-Aramco
partnership. No longer was the kingdom satisfied with the concession deal with Aramco.
It was now cognizant of the scale of its natural resource and though it surely needed the
American companies for production and markets, they needed Saudi oil more- and for
access, the price was certainly increasing.
In the final month of 1950, Saudi Arabia finally won the desired “50-50” split,
which would spread to the surrounding countries of the Gulf, much to the chagrin of many
Western oil companies. The US government was supportive of the 50-50 split of 1950 and
encouraged capitulation to Saudi Arabia’s agenda. Not only was Saudi oil a key means to
supply American energy demand, it was also a vital strategic ally in the Cold War period.
The Suez Crisis: Dynamics of the Emerging Saudi-US Alliance
The 1956 Suez Crisis further solidified the importance of Saudi Arabia-United
States relationship. When a joint British-French-Israeli military assault attempted to retake
the Suez Canal that had been expropriated and nationalized by Nasser earlier that year,
18 Ibid., 445-449.

22
Saudi Arabia embargoed both Britain and France and the US refused to provide emergency
supplies.19 The US feared that antagonizing Arab states could put oil supplies at risk.
The need for security alliances for the small Saudi state has been present
throughout its history. In the year preceding the Suez Crisis, Saudi Arabia and Egypt
signed a mutual defense treaty to facilitate inter-Arab coordination and move toward a
position of non-alignment in the Cold War.20 When this agreement began to show signs of
stress due to Saudi reservations about Nasser’s future aspirations, the kingdom sought to
realign itself back into the US orbit. The kingdom offered to facilitate dialogue between the
United States and Egypt to reduce tensions in the region and to ensure its own security vis-
à-vis a Nasserite threat.21
The Suez Crisis, subsequent clashes with Nasser’s United Arab Republic (UAR) and
the civil (proxy) war in Yemen elucidated certain dynamics underlying the US-Saudi
relationship- a friendship founded on the US need for Saudi oil and the Saudi need for US
military protection. The US views Saudi Arabian security as a US national security interest
and considers this when forging alliances in the international state system and/or
determining enemies. In the early 1950s, the US was prepared to make peace with both
Nasser’s UAR and the new regime in Yemen as long as each pledged to respect the Saudi
state. At various times in their shared history, both nations have willingly played the
“middleman” to facilitate dialogue with a third country. In 1960s Yemen, the United States
intervened to ease communication between the UAR and Saudi Arabia; later in the
decade, Sadat would appeal to the kingdom to speak with the US in hopes of expelling
19 Ibid., 491.
20 Gerges, F. (1994). The Superpowers and the Middle East: Regional and International Politics,
1955-1967. Boulder, CO: Westville Press.
21 Bin Hethlain, N. (2010). Saudi Arabia and the US since 1962: Allies in Conflict. London, UK:
Thomson Press Ltd.

23
the Soviets from Egypt. Both the US and Saudi Arabia are historically aware of their
interdependence, though at times each are forced to remind one another of this vital link
in terms of their respective advantage. To compel the Saudis to end their funding of Yemeni
royalists, the United States appealed to the threat of Saudi insecurity should the US not
protect the kingdom from Nasser;22 in the following decade during the 1967 War, Saudi
Arabia refused to increase oil production unless US policy shifted away from Israel.23
Saudi Arabia historically attempts to divert attention away from its relationship
with the US whenever possible; during the period of pan-Arabism and secular nationalism
until today, the kingdom’s close relationship with the West has represented a target for
anti-imperialist and religious-based criticisms. Saudi Arabia’s attempts to conceal its
relationship with the US do not imply that it undervalues the alliance. During the Cold
War period, as the US attempted to coax the UAR out of the Soviet sphere, Saudi Arabia
became aware that its favorable status could easily disappear should a more lucrative
alliance emerge.24 This potential shift remains a concern for the kingdom in relation to a
future US-Iran settlement and in light of a Shiite coalition government in Iraq. The
aftermath of the Suez crisis exhibited continued antagonism between the kingdom and
Aramco under the direction of Abdullah Tariki, the Saudi Oil Minister.25 As the late-1950s
was a period of oversupply, the Saudi strategy to control its resources shifted from the
pursuit of integration to greater management of both production and prices.26
22 Ibid.
23 Ibid.
24 Ibid.
Press, 513.
26 Ibid., 522-524.

24
Birth and Embargo: OPEC in the 1960s 27
The founding of the Organization of the Petroleum Exporting Countries (OPEC) in
1960 provided just the opportunity for Saudi Arabia and other exporting countries in the
region to exercise greater control of both price and production. What should have been
the start of a project of inter-exporter coordination and support was derailed by a period of
oversupply in the global oil market. The competition for revenue created and/or
exacerbated tensions amongst exporters, particularly between Iran and Saudi Arabia. As
areas such as Algeria and Libya came online, requisite restrictions on global oil supply
were vital to balancing with global demand. Despite the need to reign in supply, members
of OPEC continued to increase production alongside an abundance of independent
producers.
The 1967 Six Day War provided an opportunity for coordination amongst the OPEC
members. Following Israel’s defeat of its Arab neighbors, OPEC instituted an oil embargo
against both the US and the UK for their support of the Zionist state. Saudi Arabia, flexing
its increased power over Aramco, insisted that the kingdom would meet any breach of the
embargo by the Americans harshly. Due to large American reserves in “shut-in” oil and
Western-coordinated supply redistribution and increased production, the embargo largely
failed. It was the exporting-countries themselves that were harmed by the embargo
through lost revenues. The recently appointed Saudi Oil Minister, Ahmed Zaki Yamani, was
critical of continuing the embargo, clashing with Iraq which sought to escalate and extend
the OPEC conflict with the West. This event sheds light on another pervasive trend of Saudi
oil policy- the desire to avoid all-out conflict with the West. It also marks a shift in Saudi
behavior towards a role of regulation, moderation and measured response.
27 Ibid., 522-529, 531-535, 555-558.

25
Participation or Nationalization: The Early 1970s
In the early years of the 1970s, Saudi Arabia would continue on a path of exerting
its rights over the kingdom’s oil while demonstrating a balanced, business-savvy approach
to its production and marketing. As supply and demand aligned in this period due to a
massive increase in demand, the price of oil nearly doubled;28 simultaneously, the
exporting countries grew increasingly aware of continued revenue imbalances between
themselves and the international oil companies (IOCS). The concession arrangement was
antiquated and seemingly colonial. Even the Tehran Agreement of 1971 did not suffice for
correcting these imbalances to a satisfactory degree.29
The desire to completely end concessions drove most exporting countries toward
nationalization; however, the Saudis pursued the goal of “participation ownership,” a wise
compromise to outright nationalization.30 Recognizing that the exporters’ lack of market
access had potential to encourage inter-exporter competition and would ultimately
decrease the price of oil while increasing instability in the market, the Saudis led the
movement toward a middle ground. In this scheme, exporters would receive their
deserved revenues without cutting ties completely with the IOCs that possessed the
technical skills to move the oil to market. Ultimately, the IOCs acquiesced in 1972 and
participation deals were struck throughout the region, including with Aramco for one-
quarter-company ownership.31 Despite the best efforts of the Saudi government for
28Gause, F. G. (2010). The International Relations of the Persian Gulf. New York, NY, USA: Cambridge
University Press, 26.
29Ibid, 27. The Tehran Agreement was, in essence, a production-sharing framework agreement between
OPEC and the IOCS; the agreement stipulated that the OPEC members would receive 55% of oil
profits, in addition to an annual price increase of 35 cents per barrel.
Press, 583-585.

26
restraint, exporters such as Libya and Iraq nationalized IOC holdings in their respective
countries.
A Crude Weapon: The 1973 OPEC Embargo 32
Despite the failure of the first attempt to use “oil as a weapon,” the idea lingered
in the minds of OPEC producers into the 1970s. In Saudi Arabia, the idea initially did not
receive much support. The early decades of the Cold War had resulted in greater
economic and security linkages between the kingdom and the West that the Saudi
establishment was not inclined to disrupt. The United States “twin pillar” strategy of
promoting arms sales to both Iran and Saudi Arabia resulted in over $300 million dollars
of weapons coming into the kingdom by 1972.33 However, the situation of global oil had
radically changed. The world’s oil surplus was radically low and US oilfields had peaked
in 1970, which meant that increased US production could no longer come to the aid of
the West. When Sadat approached King Faisal about going to war with Israel, the King
gave his support.34
The kingdom’s role as global swing producer provided confidence to challenge the
West’s support of the occupation of Palestinian lands. Additionally, Saudi Arabia feared
the backlash from its neighbors should it not support a unified-Arab attack. In previous
decades, radical regional neighbors had already been critical of Saudi alignment with the
Press, 592-595, 604-611, 636-639.
Thomson Press Ltd.

27
West. The choice for self-preservation in the Arab world eventually won out over the fear
of enflaming its Western allies.
The 1973 Yom Kippur War proved once again that Saudi Arabia could play the role
of regional regulator and leader of oil policy. In response to the outbreak of the war, OPEC
exporters demanded a 100% price increase at negotiations with the IOCs. Largely
impossible for the Western oil companies to agree, they refused to make a deal. Despite
repeated warnings from the Saudi government of the consequences of US aid to Israel, the
US carried out an airlift of military supplies and earmarked $2.2B in military aid. The
responses were a unilaterally declared 70% OPEC price increase and a complete Aramco/
OPEC embargo of the US, respectively.35
Despite supporting OPEC’s punitive policies toward the West, Saudi Arabia was
cognizant that instability in Western economies increased the potential for Soviet
expansion, as well as the potential for investment in alternative energy sources and
conservation. Other OPEC producers, such as Iran, were not so concerned and advocated
sustaining the high oil prices that resulted from the 1973-74 oil shock. Throughout the
mid-1970s, Saudi Arabia, as the swing producer with excess capacity, employed this
advantage to drive oil prices down and dull the effects of any price increases from other
producers.36 It was not until 1977 that the US succeeded in pressuring the Shah’s Iran to
hold down oil prices. Two years before the Camp David Accords, as other exporters
nationalized their oil industries, Saudi Arabia took complete and total ownership of
Aramco’s holdings in the kingdom.37 Once again realizing the kingdom’s lack of market
35 Ibid., 90.
37 Citino, N. J. (2002). From Arab Nationalism to OPEC. Bloomington, IN, USA: Indiana University
Press, 164.

28
access and experience, the government negotiated so that Aramco would remain the
service provider for Saudi oil and market four-fifths of all production.38
The Shah and the Spot Market: Chaos in the Late 1970s39
The intra-OPEC price battle continued throughout the late 1970s as the spot
market provided a massive incentive for exporter schemes to increase prices as global
demand continued to rise. The overthrow of the Shah in early 1979 proved to be
particularly chaotic for global oil prices, as the initial loss of Iranian oil on the market was
coupled with a decrease in Saudi production, resulting in spot prices that doubled the
official oil price. Throughout the year, Saudi oil prices and production fluctuated, at times
producing consequences that countered the kingdom’s long-term strategy.
As other OPEC producers worked to keep spot prices high, Saudi Arabia, though
abiding by official prices, did not effectively use production rates to counter its OPEC
partners, at times even fueling the rise of spot prices with cuts. OPEC’s ability to stabilize
oil prices through coordination was effectively destroyed, as almost every producer sought
short-term profits despite the potential damage to long-term goals.
It wasn’t until the latter months of 1979 that Saudi oil policy rediscovered its
commitment to market stability through trying to use its age-old tool of excess supply to
water down prices. At times, the difference between the Saudi-supported official price and
the spot market was as high as $32. The behavior of countries such as Iran directly
combated the Saudi efforts and largely failed to notice signs of an impending crisis.
Press, 651-652.
39 Ibid., 685, 689-691, 704-705. During this period, OPEC’s longterm oil strategy proved to be
completely oblivious to market signals, as producers were swept away by the incredible revenues
earned from the spot market. During spring of 1980, OPEC proposed a 10-15% annual price increase.

29
Sweet Revenge: The 1980s and the Saudi “Netback”
In the first two years of the Iran-Iraq War, global oil demand steadily fell, as did
prices. The increase in the global oil supply proved to be more to blame than any
expected effects of regional violence; demonstrating typical Saudi behavior, the kingdom
increased production by one million bpd to make up for oil that was off market due to the
war.40
The choice between defending price and market share largely relied on the
kingdom as the swing producer. In the early-to-mid-1980s, OPEC established a quota
system for all its members except for Saudi Arabia, which agreed to shift its production
levels to defend the set price. Other producers, through price cuts and markdowns, largely
undermined Saudi’s efforts and the result was an OPEC-wide price reduction of 15% to
combat the glut in the market.41
By the mid-1980s, Saudi’s domestic production had drastically decreased due to its
high prices. The kingdom’s revenue stream had dried up due to its inability to compete
with exporters with much lower prices; Saudi competition came from the very same OPEC
partners that pledged to maintain price and restrict production. Even a country with
incredible resources like Saudi Arabia could not continue to prioritize OPEC and its
dishonest members at the risk of domestic instability. Without adequate state monies, the
kingdom faced pressure from Saudi society, whose cohesion largely came from handouts
earned from oil rents. Despite the ability to ratchet up production and flood the market,
once again, Saudi Arabia simply switched its strategy to regain market share. Through
University Press,70-79.
Press, 747-749. For further discussion of the Saudi “netback deal,” see Gause, p.80.

30
offering “netback deals” to downstream refining partners, Saudi Arabia incentivized the
purchase of its oil without coming into direct conflict with fellow OPEC producers and
increased its output.42
The absence of OPEC and Saudi official oil prices increased market volatility and
initiated a race for the lowest prices, once again proving the importance of Saudi’s role as
a stabilizer of global oil price.43 In an atmosphere of brutal competition, every global
producer of oil was forced to discount prices. The need to prevent a total collapse of oil
prices generated dialogue amongst OPEC producers. Exporters across the board supported
the reintroduction of the quota system, though OPEC radicals suggested $29 per barrel;44
other OPEC producers, including Saudi Arabia, supported an $18 barrel, as this price was
competitive to alternate energy sources and would spur economic recovery.45 In 1986,
OPEC reintroduced the quota system, which lasted for subsequent years, though Saudi
Arabia refused to act out the role of swing producer.46
The Gulf War and United States’ Permanence
The Gulf War in the early 1990s occurred during a period of market concentration
and tightening. Two-thirds of the world’s oil reserves were located in the Gulf region and
42 Ibid., 747-749.
43 Gause, F. G. (2010). The International Relations of the Persian Gulf. New York, NY, USA: Cambridge
University Press, 80. Gause discusses the reasoning behind Saudi Arabia’s abandonment of the role of
global “swing producer,” dividing the debate among three different interpretations. Bin Hethlain, also
cited in this paper, holds the view that Saudi Arabia was coordinating its oil policy with the Cold War
strategy of the United States. As the Soviet Union was also an oil producer, any decrease in oil price
would limit the funds available for war efforts. At this time, both the US and Saudi Arabia were
supporting the Afghan mujahideen in an attempt to limit Soviet expansion. Authors such as Hiro, argue
that Saudi Arabia sought to threaten Iran. Gause and Yergin hold the view that it was oil market and
intra-OPEC dynamics that drove the Saudi decision.
Press, 751.
45 Ibid., 759.
46 Ibid., 760-764.

31
demand was pushing the limits of production capacity. The initial period of the Gulf War
demonstrated the kingdom’s attempts to promote regional stability. Saddam Hussein’s Iraq
was in dire economic straits at the end of the Iran-Iraq War and low oil prices countered
any attempts toward debt-relief.47 Much of Hussein’s ire was directed toward Kuwait and
the United Arab Emirates, whose production rates rose beyond the established quota
levels. Saudi Arabia, as a leader of OPEC and a frequent challenger and critic of
overproduction, pushed both countries to reorient production to agreed-upon levels in
order to pacify Iraq.48
When Saddam Hussein’s Iraqi army invaded Kuwait, the act was not merely an act
of aggression toward the Kuwaitis, but toward the international community; thus, when
military actions commenced and Iraq began to threaten Saudi Arabian sovereignty, OPEC
solidified to combat the aggression. Each OPEC country offered to increase production to
limit the negative effects of Iraq and Kuwait going offline. Ultimately, Saudi Arabia was
able to produce three-fourths of the offline supply by producing nearly 3 million bpd of
“shut in” oil.49
When the war ended in 1991, sanctions on Iraq were already in place for nearly
one year; it would be almost five years later under the “oil-for-food” program that any
amount of Iraqi oil was permitted for sale.50 For the Saudi oil sector, the lack of Iraqi oil on
the market was most welcome; as production increased to a level not seen since the
47 bin Hethlain, N. (2010). Saudi Arabia and the US since 1962: Allies in Conflict. London, UK:
Thomson Press Ltd, 203.
49 Yergin, D. (1991). The Prize: The Epic Quest for Oil, Money & Power. New York, New York, USA: Free
Press, 770-774. Gause (p.133) notes that it was Saudi Arabia and the United Arab Emirates, together,
that raised production by 3 mbpd.
50 United Nations Security Council. (1995, April 14). Resolution 986. Retrieved May 05, 2011, from
http://daccess-ods.un.org/TMP/1195367.27666855.html

32
period surrounding the “netback deal,” the kingdom broke from its standard behavior and
kept production rates high- even when Kuwait went back online.51 Oversupply kept oil
prices low until the late 1990s.
The security climate in the post-Gulf War period also transformed as the kingdom
re-evaluated its defense capabilities from both internal and external threats. Since the
beginning of the US-Saudi alliance in the 1950s, the kingdom took the utmost care to
keep its cooperation with the West as surreptitious as possible. As the keeper of the holiest
sites in Islam, foreign intervention consistently provoked outcry and resistance from Saudi
society since the Ikhwan rebellion in the 1920s. Mounting Islamism in the post-Gulf War
period had to be managed with the need to protect the kingdom’s external borders;52 thus,
though the overwhelming presence of the US military was somewhat welcome, the
monarchy refused to formally agree to any security arrangements with the US to curtail
domestic unrest.53
An Unforeseen Financial Crisis
The Asian financial crisis in the late 1990s proved to be both a challenge for Saudi
Arabia, domestically and internationally. An OPEC decision in late 1997 to raise quotas by
2 million bpd, combined with Saudi oversupply and increasing levels of Iraqi oil on the
market, resulted in plummeting global oil prices.54 For a rent-based economy such as
52 bin Hethlain, N. (2010). Saudi Arabia and the US since 1962: Allies in Conflict. London, UK:
Thomson Press Ltd, 230.
54Kohl, W. L. (2003). OPEC behavior, 1998-2001. The Quarterly Review of Economics and Finance ,
42, 209-233.

33
Saudi Arabia, the loss of oil revenues coupled with a high population growth rate, resulted
in domestic unrest. The need to pacify the Saudi population greatly influenced the
kingdom’s subsequent policy decisions and alliances. Despite US pressure for oil policy
reforms, Saudi Arabia joined with Iran in 1999 to promote stricter OPEC quotas to
increase oil price; ultimately, the Saudi-Iran facilitated cuts to production increased the
price of oil nearly threefold from 1998 until 2000.55
9/11 and the “Global War on Terror”
The Al-Qaeda terrorist attacks on September 11, 2001, and the subsequent wars in
Iraq and Afghanistan, greatly affected the Saudi state, both economically and
diplomatically. Though the Saudis allied with the US to arm the anti-Soviet mujahidin in
the 1980s, the kingdom was not so keen to offer US access to Saudi military bases for the
2001 invasion of Afghanistan, nor for the subsequent war in Iraq.56 In the month after the
start of the Iraq war, the United States signaled the end of US military operations in Saudi
Arabia.57
The “Global War on Terror” largely unfolded during a period of sustained increase
in global oil prices. Deviating from the role of price moderator, the Saudis facilitated five
OPEC production cuts between 2006 and 2008, two of which buttressed high prices,
Thomson Press Ltd, 303. Saudi Arabia did provide some support to both invasions, though it was
largely limited to the use of military bases on the Iraqi border for refueling and of Prince Sultan Airbase.
Epitomizing typical Saudi behavior, any military cooperation was largely downplayed in attempts to
limit domestic provocation.

34
while the latter three were responses to the global financial crisis.58 Contrary to the
aforementioned oil policy prescriptions, the US-Saudi security arrangement has been
reinforced during the latter 2000s through arms sales and mutual distrust of the expansion
of Iranian influence in the region.59
The Future of a Saudi “Arab Spring”
The 2011 uprisings throughout the Middle East and North Africa have illuminated
weaknesses in the Saudi state and its relationship with the United States. The kingdom has
managed to avoid the fate of countries such as Egypt, Algeria, and Tunisia largely due to its
vast oil wealth and the support of the US government. Though there has been some protest
in eastern Saudi Arabia amongst the Shia, civil society has largely been silent throughout
the rest of the country. The Kingdom has handled the domestic political situation
according to the longstanding trend of co-optation through financial handouts, amounting
to more than $100 billion dollars since February, and the promise of future political
reform.60
Saudi Arabia’s boundless ability to employ oil revenues to suppress internal dissent
and regulate global oil prices is uncertain, particularly in light of the recent release of
58 Ibid., 182.
59 MacAskill, E. (2010, October 21). US Congress notified over $60bn arms sale to Saudi Arabia.
Retrieved May 05, 2011, from The Guardian: http://www.guardian.co.uk/world/2010/oct/21/us-
congress-notified-arms-sale-saudi-arabia The $60 arms sale in 2010 followed a previous 2007 arms
sale, amounting to $20 billion dollars.
60 Jones, T. (2011, May 06). OIl Wealth and U.S. Backing Enables Saudi Arabia to Crush Dissent in
Bahrain. Democracy Now! (A. Goodman, Interviewer) In 2005, Saudi Arabia allowed municipal
elections for half the seats of the majlis al-shura; the other half was appointed by the royal family. In
response to the 2011 uprisings, the monarchy announced the next round of elections in September
2011, though it remains to be seen if all the seats will be democratically elected or if the body will
possess greater political powers. For further reading on Saudi municipal elections, see Reform in the
Middle East Oil Monarchies, Eds. Ehteshami and Wright, (Ithaca Press, 2007).

35
diplomatic cables detailing the kingdom’s possible exaggeration of recoverable reserves.61
Should the kingdom’s ability to regulate oil prices be compromised, transgressions of US
policy such as the invasion and occupation of Bahrain by Saudi forces and the professed
support for ousted Egyptian dictator, Hosni Mubarak, will likely carry greater
consequence. Despite Saudi assurances to increase oil production after the onset of
conflict in Libya, the kingdom cut production by 800,000 bpd due to claims of market
oversupply.62 Should the petromonarchy lose the allure of its essential resource, its internal
and external stability will come greatly into question, particularly in absence of requisite
economic, political and social reforms.
61Vidal, J. (2011, February 08). WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid
on prices. Retrieved May 05, 2011, from The Guardian : http://www.guardian.co.uk/business/2011/feb/
08/saudi-oil-reserves-overstated-wikileaks
62Bakr, A. (2011, April 17). Saudi slashes oil output, says market oversupplied. Retrieved May 05,
2011, from Reuters: http://www.reuters.com/article/2011/04/17/us-saudi-oil-idUSTRE73G14020110417

36
A book review by Erik Syverson

37
In her article, “Iraqi Oil Workers’ Movements: Spaces of Transformation and
Transition,” British freelance journalist and activist Ewa Jasiewicz contextualizes the early
implications for political activism and labor-controlled resources in recent post-invasion
Iraq. Collected in a late 2010 volume, Sparking a Worldwide Energy Revolution: Social
Struggles in the Transition to a Post-Petrol World, edited by Kolya Abramsky, Jasiewicz’s
main research for her article was done “on the ground” in Iraq, as she likes to say, in 2008
and so her time frame, now three years old, does offer some disadvantages for more
contemporarily oriented analyses of the main issues with oil use, control and distribution
in the region and beyond.
However, her goal is to provide readers with a larger picture of the control of the
resource of petroleum in Iraq in the aftermath of the 2003 U.S. Invasion, the subsequent
removal of Saddam Hussein and the ensuing occupation. Her article first appeared in the
online journal, The Commoner, on January 22, 2009, as part of the special "Energy Crisis"
edition (No.13, Winter 2009), with other contributors to the collected volume, Sparking a
Worldwide Energy Revolution, including Abramsky. That edition along with this and other
articles in PDF, can be found here: http://www.commoner.org.uk/?p=69.
In the introduction to her piece Jasiewicz reminds her readers of the remarkable
facts which frame the energy geopolitics of Iraq and the western presence there in terms of
its supply of known reserves of fossil fuels.“Possessing 115 Billion barrels of proven
reserves, with possibly twice that amount un-discovered, Iraq has the second largest
reserves on the planet — approximately 10-20 percent of the global total.” (219) Moreover
she elaborates this reminder with another, “that Iraqi oil is amongst the cheapest to

38
extract,” at roughly $1.50 per barrel. Furthermore, Iraq’s reserves-to-production ratio
—“calculated at current levels of productivity and demand and the un-extracted potential
of current producing and discovered fields”—is three times the amount of Saudi Arabia, “a
staggering 173 years.” In other words, such reserves represent a preeminent focus for
powerful Western nations like the U.S. and U.K., and the occupation-installed Iraqi elites
who have been working hard since the invasion to secure such reserves for long-term
foreign direct investment and control. An added advantage to Iraqs prospects of becoming
the next Saudi Arabia (for Western powers) was its potential to be less politically volatile
than Saudi Arabia, and thus more reliable as a source of inexpensive and seemingly
indefinite energy supply. (219)
The author organizes what she sees as the main concerns confronting both the
people of Iraq and their lingering occupiers: not only who will control the oil, but perhaps
more importantly, how such control will be wielded. Any possibility of consolidating
control over Iraq's hydrocarbons needed to be symbolically enshrined, in a constitutional
guarantor of the means of such consolidation. This was done when in a matter of weeks,
under conditions of duress, according to some Iraqi law-makers, and under the heavy
influence of U.S. Ambassador Zallamy Khalilizad, the Iraqi Constitution drafted into
existence the liberalization of the oil sector in the interests of foreign investors, with
Article 110: the federal government and the governments of the producing regions and
provinces together will draw up the necessary strategic policies to develop oil and gas
wealth to bring the greatest benefit to the Iraqi people, relying on the most modern
techniques of market principles and encouraging investment. [Jasiewicz's emphasis] (220)
The author explains next how in the historical context of middle-east oil
development and its complex relationship with key western powers in the region such as

39
the 2003 invasion forces, the U.S. and the U.K., and their respective allied IOCs "Iraq
represents a pendulum swing back in their favor after thirty years of declining influence
and reserves, as the control of Iraqi oil by Saddam Hussein, and especially after the era of
many NOCs, seems to be coming to a close. “The key to transferring ownership from state
to [IOC] control,” Jasiewicz tells readers, “is the ratification of the Iraqi Oil Law.” (220)
Such a document would yield “seismic political and economic power,” the signing of
which “would have global implications for the growth of the global oil industry” in
corporate and state control and would moreover further establish “an already politically-
and militarily-empowered Iraqi ruling class.” (221) “Nine multi-national oil companies,
the IMF, and the UK and US governments” exerted heavy pressure on its drafting.
The Iraqi Oil Law (IOL) would enable regions within Iraq to “create their own oil
industries,” thus wresting control of the resource from the Iraqi national population as a
whole and putting it into the hands of regionally powerful elites in concert with IOCs and
the internationally representative institutions of the ‘neoliberal consensus’ under the aegis
primarily of the IMF. One of the key mechanisms within the Iraqi Oil Law is the Federal
Oil and Gas Council, a fifteen member, politically-appointed body made up of sectarian
regional representatives, which was given virtually full control over the types of contracts,
which IOCs would obtain them, their duration and terms. However, since the invasion,
occupation and resultant insurgency over the past eight years, perhaps the most pressing
of the emergent facts on the ground has been the movement of millions of internal
refugees fleeing sectarian violence and the creation of new communities, divided along
sectarian lines. Baghdad, for example, became segregated into sectarian cantons, sealed
by concrete walls. (221)
Adding fuel to this fire are the US fostered Awakening Councils, also labeled The

40
Sawa movement, a network of paid-off tribal militias working in the service of the US
interests in Iraq, operating primarily out of Anwar province, these militant groups are being
groomed for local government under long-term US occupation. Neoliberal consensus
under the aegis primarily of the IMF. The incentive for the constituent break-up of Iraq: the
creation of a separate central so-called Sunni state with authority over the development of
its oil and gas reserves. (221)
This would amount to a virtual privatization of Iraqi energy controlled as it would
be not by local populations, and most importantly, not by the labor class taken from such
communities, but rather by a collusion between IOCs, the national military forces of such
corporations base countries, as well as locally installed elites with their own local military
force. In other words, it would be a win-win situation for the US and UK occupation
authorities, as the author attests.(222)
This would likely lead, according to Jasiewicz, to Iraq's oil industry [becoming]
highly militarized [as in Nigeria, Colombia and Saudi Arabia] protected by concentric
circles of concrete, and aerial and land surveillance. Before moving on to contextualizing
the competing labor movement in opposition to such an outcome, Jasiewicz summarizes
the implications for her readers: Iraq represents a major refueling zone for free-market
corporate capitalism. (222)
In opposition to such an outcome, however, is the new social movement of the
Iraqi oil workers, which has a background and history that may place in doubt the extent
of its more recent emergence. The oil industry in Iraq was the only one to remain
operational through the Iran-Iraq war and over the thirteen-year long sanctions regime
established by the UN Security Council after Saddam invaded Kuwait in 1990. Thus
despite a crumbling infrastructure and constant military activity, the oil sector & remained

41
on-stream and ongoing. Such rare continuity in a national Iraqi industry has rendered the
appearance of a labor community, yet without for most of that time what one might
consider the usual trappings of such a collective. The oil industry was one of the most
repressed and highly-surveilled industries in the country, devoid of collective bargaining
and strikes to resist oppressive employers or the government. (222)
And yet, in spite of such monolithic opposition first in the form of authoritarian
dictatorship and perhaps next in that of militarized corporate control oil workers were
(and still are) incredibly conscious of their own power and value to the economy &
underscored by grassroots reconstruction efforts by the workers themselves.” This is most
clearly represented by the Iraqi Federation of Oil Union (IFOU), headed by president
Hassan Jumaa Awad. (223)
With actions marked by autonomous organization of salvage projects, often
resorting to scrapped material obtained by “black-market” means to render their own
independent infrastructural improvements, the IFOU has become the main platform from
which “the shared experience of Iraqi oil workers” has begun to coalesce into “the
conditions for a social movement.” Such a labor-oriented foundation, combined with the
ubiquitous presence of Islamic faith as well as a nationalist-based concept of identity
could amount, Jasiewicz suggests, to “a spiritual quest to guard Iraq’s resources from
tyranny, be it corporate, neoliberal capitalist, or dictatorship capitalist.” (223)
"
Added to this situation is the dynamic of privatization within Islam. In 2006 the
IFOU drafted a counter document consisting of a list of demands in explicit opposition to
the Iraqi Oil Law. Jasiewicz’s article quotes a section of the document, which also “forms a
central tenet of the IFOU’s Organizing principles”: "Since work is the qualitative activity
that sets apart the human experience, and it is the source of all production, wealth, and

42
civilization, and the worker is the biggest asset to the means of production (we honor
humanity) we demand that this law includes an explicit reference emphasizing the role of
all workers in matters of oil wealth and investment, to protect them and build their
technical capacity, both in and outside Iraq. Moreover, a further trait of Islam that tends to
abet the values of what many would believe to be a more humanitarian world than that
wrought by neoliberal capitalism is its respect for the environment and the injunction it
delivers for its protection." (224)
The author, thus having provided the background context to the primary actors
concerning the future of Iraq's oil supply, then begins to elaborate a slightly different
argument. Directly aligning with several of the primary focuses of the volume in which
Iraqi Oil Workers Movements was published, Sparking a Worldwide Energy Revolution,
Jasiewicz emphasizes how the coming decades will be particularly decisive for the
eventual outcomes of humanity's relationship with fossil fuels and how the inevitable end
of this relationship will play out.
The book enumerates several key areas in which impending conflicts will be
especially charged with wide-ranging implications. One such area is that of the labor
supply of the fossil fuel industry. While an alliance between environmental movements
and anti-globalization movements with those of international industrial labor within the
fossil fuel industry may not initially appear to be a likely marriage of interests, Jasiewicz
echoes the volumes editor, Abramsky, in insisting on such a necessity for the possibility of
a spark to a worldwide energy revolution actually catching fire.

43
DISCLAIMERS
Iraqi Oil Workers' Movements: Spaces of Transformation and Transition. & A Historical overview of Algeria and the Role of
Hydrocarbon: re p ro d uc e d in this d o c umen t as or igin ally wr itten by th e au th or s. Any use of
mater ials or infor mation from these case studies, including citation or reproduction, without
mentioning the author s, is str ictly prohibited.
The Saudi Oil Empire . ALL RIGHTS RESERVED.

T h e o p i n i o n s e x p r e s s e d i n t h i s e s s ay a r e t h o s e o f t h e a u t h o r a n d d o n o t r e f l e c t n o r r e p r e s e n t
D r. O ' D o n n e l l ' s . A ny u s e o f m a t e r i a l s , a r g u m e n t s o r i n fo r m a t i o n f r o m t h e s e r e s e a r c h p a p e r s ,
including citation, referencing, reproduction, modification, distr ibution or republication, without
the pr ior consent of the author, is str ictly prohibited.
© MAY 2011 - Ashley Cunningham
For confidentiality reasons, K urdistan: an Oil tragedy in the Hear tland , can n ot appear on th e
publicly available ver sion of this document.
© MAY 2011 - Lawren Mered

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MENAOILRESEARCH

Spring '11 Final Research Project

The G eopo l it ic s o f G l o b a l O i l seminar by Dr. Tom O'Donnell

The Saudi Oil Empire

Iraqi Oil Workers' Movements: Spaces of Transformation & Transition

MENA OIL RESEARCH - ALG / KSA / IRQ

MENA OIL RESEARCH - ALG / KSA / IRQ

hydrocarbons and its global market1 .

MENA OIL RESEARCH - ALG / KSA / IRQ

movement gained momentum. To appease the population, in 1936 the Blume-Violette

Oil Discoveries and the War for Independence 4 .

MENA OIL RESEARCH - ALG / KSA / IRQ

frequented by Europeans. This illustrates the FLN’s philosophy of Arabisation, which

French’s (native) assimilation to European culture. The political counterpart to the

French had made massive oil discoveries in Algeria’s Sahara region.

MENA OIL RESEARCH - ALG / KSA / IRQ

French military intensifies its counter attacks.

MENA OIL RESEARCH - ALG / KSA / IRQ

French-Algerian cooperation in resource management. The Accord also included a

“Declaration of Principles on co-operation for development of the sub-soil resources of the

II - The Rise of an Industry

6 US Energy Information Agency, “Algeria Country Energy Profile,” Retrieved from

MENA OIL RESEARCH - ALG / KSA / IRQ

commercialization of the nation’s hydrocarbon resources. Although at its founding Algeria

overthrown by Houari Boumedienne in a bloodless coup.

Boumedienne’s primary goal is to end dependency policies and promote solidarity

solidarity during the 67 war, Algeria becomes OPEC’s tenth member 8 .

MENA OIL RESEARCH - ALG / KSA / IRQ

interests9. As a result all French companies except Total ceased operations.

While nationalization resulted in a windfall of revenue throughout the 70’s, and

MENA OIL RESEARCH - ALG / KSA / IRQ

consolidates power into a one party regime enforced by the military.

industrialization, restructure state companies, accelerate development of social

price agreement of $5.10/mBtu with France.

III - Price Drop and Political Instability

MENA OIL RESEARCH - ALG / KSA / IRQ

signaled a weakening of the state monopoly.

or economic platform, but gain popularity by criticizing the government’s state

Islamic Salvation Army (AIS), and civil war begins.

MENA OIL RESEARCH - ALG / KSA / IRQ

IV - Civil war and a Shaky Peace

increase in revenue during an increase do not lead to a substantial or sustained increase in

their quality of living.

political parties, and establishes an upper chamber in the legislature it an attempt to

long the calm will last.

MENA OIL RESEARCH - ALG / KSA / IRQ

MENA OIL RESEARCH - ALG / KSA / IRQ

The following project seeks to provide a comprehensive history of oil in Saudi

text are inspired, influenced or directly quoted from Daniel Yergin.

The First Petromonarchy 14

MENA OIL RESEARCH - ALG / KSA / IRQ

the watchful eye of Ibn Saud.

consequently, the need to control conservative, activist elements of Saudi society.

renamed the kingdom and Saudi Arabia was born.

MENA OIL RESEARCH - ALG / KSA / IRQ

Discoveries in the Region and the First Concession15

first concession began.

mechanism to keep other companies at bay.

15 Ibid., 289-292, 298-302.

MENA OIL RESEARCH - ALG / KSA / IRQ

World War II: Oil as National Security16

Following the exploration and assessments of a prominent American geologist, Saudi

MENA OIL RESEARCH - ALG / KSA / IRQ

the Middle East

MENA Oil Research - Public Version - NSU Tom O'Donnell

MENA Oil Research - Public Version - NSU Tom O'Donnell